LEXSEE 159 N.W.
2D 896,AT 900
Francis D. Gagne v. Harold A. Hoban
No. 40,589
Supreme Court of Minnesota
280 Minn. 475; 159 N.W.2d 896; 1968 Minn. LEXIS 1131
June 28, 1968
PRIOR HISTORY: [***1]
Action in the Hennepin County District
Court for the reconveyance of certain
real estate on the grounds of unjust
enrichment and for an accounting.
After findings that plaintiff was
entitled to a warranty deed on payment
of certain sums, Irving R. Brand,
Judge, defendant appealed from an
order, Thomas Tallakson, Judge,
denying his motion for a new trial.
DISPOSITION:
Affirmed.
CASE SUMMARY:
PROCEDURAL POSTURE: Plaintiff debtor
brought an action against defendant
creditor in the Hennepin County
District Court (Minnesota) for the
reconveyance of certain real estate on
the grounds of unjust enrichment and
for an accounting. After the trial
court found that the debtor was
entitled to a warranty deed on payment
of certain sums, the creditor appealed
from an order denying his motion for a
new trial.
OVERVIEW: The creditor argued that the
written instruments and all of the
facts surrounding the transaction
required a finding that the parties
intended a sale and purchase rather
than a security transaction. The trial
court's order declared the debtor to
be the owner in fee of the premises
subject to a mortgage loan in favor of
the creditor. There was sufficient
evidence to indicate a mortgagor-
mortgagee relationship rather than
that of vendor and purchaser. The
effect of the quitclaim deed from the
bank, the warranty deed from the
debtor to the creditor, and the
accompanying option to purchase placed
the debtor in a position, which gave
him additional time to make a
financial arrangement to save his
farm. The court could well find that
the debtor's situation with reference
to his financial obligations remained
the same except that he had additional
time to work out his difficulties and
that the creditor stood in the shoes
of the bank. That conclusion followed
from the terms of the option contract,
which gave the debtor the right to
continue in use and occupancy of the
property, together with the right to
plant and harvest crops without paying
rent, but including paying taxes.
OUTCOME: The court affirmed the trial
court's order.
CORE TERMS: mortgage, deed, option to
purchase, conveyance, warranty deed,
indebtedness, option contract, real
estate, circumstances surrounding,
personal obligation, equitable
mortgage, quitclaim deed, exclusive
use, foreclosure, borrower, grantor,
farm, mortgagor-mortgagee, harvest,
plant, crops, foreclosure proceeding,
absolute conveyance, foreclosure sale,
real property, net earnings,
installation, redemption, conveyed,
grantee
LexisNexis(R) Headnotes
 purports to be or is in substance and
Contracts Law > Contract reality a mortgage is ultimately a
Interpretation > General Overview matter of the intention of the
Real Property Law > Financing > parties. Their intention is to be
Mortgages & Other Security Instruments determined by reference to the
> Definitions & Interpretation instruments employed and to all the
Real Property Law > Financing > facts and circumstances surrounding
Mortgages & Other Security Instruments the transaction.
> Foreclosures > General Overview Conveyance -- deed and option to
[HN1] The existence or nonexistence of purchase back -- when mortgage --
intention is a matter of fact to be intent of parties.
determined by reference to the
instruments employed by the parties 2. Where the purpose and effect of
and to all the facts and circumstances the transaction is to give security on
surrounding the transaction. Where the real property for a debt, the
purpose and effect of the transaction transaction is a mortgage and equity
is to give security on real property will give it that effect, and no
for a debt, the transaction is a agreement made at the time will
mortgage and equity will give it that obviate a foreclosure.
effect, and no agreement made at the Conveyance -- deed and option
time will obviate a foreclosure.
[***2] to purchase back -- when
mortgage -- intent of parties -- where
borrower does not incur personal
Real Property Law > Financing >
obligation.
Mortgages & Other Security Instruments
> Definitions & Interpretation 3. Where all the circumstances
[HN2] Where all of the circumstances indicate the real nature of the
indicate the real nature of the transaction is that of a loan advanced
transaction is that of a loan advanced on security of real estate conveyed to
on security of realty conveyed to the one making the loan, the transaction
one making the loan, the transaction is nonetheless a mortgage even though
is nonetheless a mortgage even though the advance is made wholly on the
the advance is made wholly on the security without any personal
security without any personal obligation on the part of the
obligation on the part of the borrower.
borrower.
Conveyance -- deed and option to
purchase back -- effect -- grantor
Contracts Law > Contract remaining in possession.
Interpretation > General Overview 4. Where defendant provided money
Real Property Law > Financing > to permit plaintiff to regain title to
Mortgages & Other Security Instruments a farm which had been lost by
> Definitions & Interpretation foreclosure and thereafter took a deed
[HN3] In the final analysis, the from plaintiff and gave him an option
question of whether the parties to a to purchase back, and where during the
conveyance really intended it to be option period plaintiff remained in
absolute or security for indebtedness possession and control of the property
is for the triers of fact. and continued farming operations, the
trial court was warranted in finding,
HEADNOTES: in light of the instruments and
surrounding circumstances, that the
Conveyance -- deed and option to transaction was in fact a mortgage
purchase back -- when mortgage -- rather than an absolute sale.
intent of parties.
Conveyance -- deed and option to
1. Whether a transaction which is purchase back -- effect -- value
cast in the form of a deed and an exceeding consideration.
option to purchase back is what it
 5. In determining whether property Warner, Ratelle, Hennessy, Vander
conveyed by a warranty [***3] deed Vort & Stasel, for appellant.
with an option to purchase back was a Wegner, Wegner & Amerman, for
sale or security transaction, the respondent.
trial court could take into
consideration the fact that the value
JUDGES:
of the property was greater than the
consideration given for the deed. Murphy, Justice. Otis, Justice
(dissenting).
Conveyance -- deed and option to
purchase back -- when mortgage -- OPINION BY:
question of fact.
MURPHY
6. Whether the parties to a deed
and an option to purchase back OPINION:
intended it to be an absolute
conveyance or security for [*476] [**898] This is an
indebtedness was a question for the appeal from an order of the district
trier of fact. court denying defendant's motion for
amended findings or for a new trial.
Case distinguished. The trial court found that in a
7. Citizens Bank of Morris v. transaction between the parties a deed
Meyer, 149 Minn. 94, 182 N.W. 913, and an option to purchase back certain
distinguished on the facts. real estate was an equitable mortgage
rather than
COUNSEL:
 [*477] a sale with an option to 7,753.17, which included the amount
purchase, as contended by defendant. bid in at the foreclosure [***5]
Defendant argues that [***4] the sale, together with an additional sum
written instruments and all of the of $ 680 which satisfied a personal
facts and circumstances surrounding note which plaintiff owed the bank for
the transaction require a finding that the purchase of farm equipment. At
the parties intended a sale and that time the bank delivered to
purchase rather than a security defendant a quitclaim deed to the
transaction. property, in which plaintiff was the
grantee, and at the same time
From the record it appears that, on plaintiff delivered to defendant a
July 31, 1957, plaintiff, Francis D. warranty deed to the same premises.
Gagne, was the owner of half a quarter On or about the same date plaintiff
section of land in rural Hennepin and his brother, Robert Gagne, and
County, Minnesota. On that date a defendant entered into an "Option
sheriff's certificate of sale, Contract," under which, among other
covering the property, was issued to things, (a) defendant granted to the
the State Bank of Long Lake in a Gagnes an option to purchase the
mortgage foreclosure proceeding. No premises for $ 8,700 if purchased
redemption was made from this before February 28, 1959, or for $
foreclosure proceeding and, on July 9,200 if purchased subsequently but on
31, 1958, title vested in the bank. or before August 29, 1959, said option
It appears that some time prior to the to expire on August 30, 1959; (b) the
transaction with which we are Gagnes were granted the exclusive use
concerned plaintiff's brother, Robert of the premises to and including
Gagne, had attempted to find some August 29, 1959; and (c) Hoban was
means which would give plaintiff a under no obligation to pay real estate
chance of keeping the farm and to that taxes on the premises. No reference
end had discussed the matter with was made to any rental for the period
defendant, Harold A. Hoban. Defendant of the option. The trial court found
became interested and, on August 29, that the fair market value of the
1958, went to the bank with plaintiff. premises on August 29, 1958, was
Plaintiff introduced defendant to the approximately between $ 11,000 and $
bank's manager and informed him that 12,000.
defendant was going to pay his
indebtedness to the bank. The option was not exercised on or
Accordingly, defendant paid $ before August 30, 1959. Plaintiff
 [*478] [***6] continued to live on the premises." The trial court found
the premises until he was evicted in [***7] that the cost of the
1961. Pursuant to an agreement improvements, "made by defendant in
plaintiff paid to defendant the sum of good faith and with constructive
$ 1,000 as rent for the premises for knowledge by plaintiff," was $
the period from April 1, 1960, to 8,983.30. In addition, the court
March 31, 1961. In April 1961 found that defendant "also devoted his
defendant brought unlawful detainer own time in connection therewith, and
proceedings against plaintiff and, on the reasonable value of defendant's
May 2, 1961, took possession through a services is $ 5,000." The trial court
writ of restitution. It appears that found that after deducting taxes and
Gagne paid the 1958 real estate taxes insurance defendant received net
on the premises in 1959. Defendant earnings from the property of $
has paid the real estate taxes due and 4,161.85.
payable in 1960 and thereafter.
As conclusions of law, the trial
[**899] The court found, on the date
court determined that the deed from
of his order, April 5, 1966, that the
plaintiff to defendant and the "option
value of the property, after
contract" created an equitable
improvements made by defendant, was $
mortgage in favor of defendant. He
25,000. The findings recite:
concluded that the parties intended
"* * * [D]efendant made various the warranty deed from plaintiff to
improvements to the premises, defendant as security for plaintiff's
including specifically, but without indebtedness to defendant arising out
limiting the generality of the of the advances made to the State Bank
foregoing, the following: installation of Long Lake. The trial court's order
of plumbing, installation of a cement declared plaintiff to be the owner in
floor in the basement, rebricking of fee of the premises subject to a
the outside of the house, improving mortgage loan in favor of defendant.
the barn, tiling low areas of the The order provided:
ground, installing a septic tank and
"Upon the payment of the following
cesspool, building a garage, etc."
sums by plaintiff to defendant,
defendant shall execute and deliver to
The trial court also found that
plaintiff a warranty deed to the
defendant made "necessary repairs to
 [*479] premises involved herein and
a satisfaction of defendant's
equitable mortgage: $ 7,753 with
interest [***8] thereon at the rate
of six per cent per annum from and
after August 29, 1958, plus $
9,821.45."
It appears that the last figure takes
into account defendant's expenses and
the cost of his contributions to the
premises made in good faith, less "net
earnings" from the property.
1-2. Whether the transaction
before us, which is cast in the form
of a deed with option to purchase
back, is what it purports to be or is
in substance and reality a mortgage is
ultimately a matter of the intention
of the parties. [HN1] The existence
or nonexistence of such intention is a
matter of fact to be determined by
reference to the instruments employed
by the parties and to all the facts
and circumstances surrounding the
transaction. United States v.
Minnesota (D. Minn.) 113 F. Supp. 488;
Citizens Bank of Morris v. Meyer, 149
Minn. 94, 182 N.W. 913; Nitkey v.
Ward, 199 Minn. 334, 271 N.W. 873;
Buse v. Page, 32 Minn. 111, 19 N.W.
736, 20 N.W. 95; King v. McCarthy, 50
Minn. 222, 52 N.W. 648; Westberg v.
Wilson, 185 Minn. 307, 241 N.W. 315;
Hewitt v. Baker, 222 Minn. 292, 24
N.W. (2d) 47; Land O'Lakes Dairy Co.
v. County of Wadena, 229 Minn. 263, 39
N.W. (2d) 164, affirmed, 338 U.S. 897,
70 S. Ct. 251, [***9] 94 L. ed. 552;
Lundeen v. Nyborg, 161 Minn. 391, 201
N.W. 623. Where the purpose and effect
of the transaction is to give security
on real property for a debt, the
transaction is a mortgage and equity
will give it that effect, and no
agreement made at the time will
obviate a foreclosure. Sanderson v.
Engel, 182 Minn. 256, 234 N.W. 450.
3. Although the instruments do not
express the existence of a loan from
defendant to plaintiff, that fact is
not controlling. [HN2] Where all of
the circumstances indicate the real
nature of the transaction is that of a
loan advanced on security of realty
conveyed to the one making the loan,
the transaction is nonetheless a
mortgage even though the advance is
made wholly on the security without
any personal obligation on the part of
the borrower. Hewitt v. Baker, supra;
Lundeen v. Nyborg, supra; 12 Dunnell,
Dig. (3 ed.) § § 6188, 6189.
[**900] 4. While the court might
well have reached a different
conclusion, it
 [*480] seems to us that there is property, together with the "right to
sufficient evidence in the record to plant and harvest crops" without
indicate a mortgagor-mortgagee payment of rent and with the
relationship rather than that of accompanying obligation of paying
vendor and purchaser. Although taxes and special assessments. The
plaintiff's time for redemption from trial court could well conclude that
the mortgage foreclosure [***10] sale this arrangement [***11] was more
had expired when the transaction was consistent with the mortgagor-
entered into, it is apparent that the mortgagee relationship than with that
bank intended that plaintiff should of a landlordtenant or vendor-
retain the property upon payment of purchaser relationship. While it is
his indebtedness. Rather than dispose conceded that no expressed debt
of the property in a different manner, existed, that circumstance, while
it chose to give plaintiff a quitclaim material in determining whether a deed
deed to the property so that he could was intended as a mortgage or as an
then use it as security for further absolute conveyance of land, is not
financing. The effect of the controlling. Hewitt v. Baker, supra;
quitclaim deed from the bank, the Lundeen v. Nyborg, supra.
warranty deed from plaintiff to
5. Moreover, the trial court could
defendant, and the accompanying option
take into consideration the fact that
to purchase placed plaintiff in a
the value of the property was greater
position which gave him additional
than the consideration given for the
time to make a financial arrangement
deed, a circumstance which could well
which would save his farm. The court
have influenced the court in
could well find that plaintiff's
determining that the debt was intended
situation with reference to his
to operate as a mortgage. Holien v.
financial obligations remained the
Slee, 120 Minn. 261, 139 N.W. 493;
same except that he had additional
Annotation, 89 A.L.R. (2d) 1040.
time to work out his difficulties and
that defendant stood in the shoes of 6. [HN3] In the final analysis,
the bank. This conclusion follows the question of whether the parties to
from the terms of the option contract a conveyance really intended it to be
which gave plaintiff the right to absolute or security for indebtedness
continue in use and occupancy of the
 [*481] is for the triers of fact. "Option Contract
St. Paul Mercury Ind. Co. v. Lyell,
"For and in consideration of the
216 Minn. 7, 11 N.W. (2d) 491; Nitkey
sum of One Dollar and other good and
v. Ward, supra.
valuable consideration, the receipt of
7. Defendant places some reliance which is hereby acknowledged, the
on Citizens Bank of Morris v. Meyer, undersigned Harold A. Hoban hereby
supra, which involved a warranty deed grants unto Francis D. Gagne and
with an additional clause providing Robert L. Gagne, the option to
that the deed might [***12] be purchase the following tract of land
defeated by the grantor's payment of a located in Hennepin County, Minnesota:
specified sum to the grantee within "East half of Southeast Quarter of
one year. The court there held that Section 28, Township 119, Range 23,
the transaction was in fact a containing eighty acres more or less,
conveyance and not a mortgage. In that subject to existing highway.
case, however, the grantor
relinquished possession of the "The purchase price of the
premises and paid no taxes, facts property, if this property be
which materially distinguish that case purchased under this [**901] option
from the one before us. on or before February 28, [***13]
1959 is Eight Thousand Seven Hundred
Affirmed.
Dollars ($ 8,700.00) and if purchased
subsequent to that date and on or
DISSENT BY:
before August 29, 1959, the price is
OTIS Nine Thousand Two Hundred Dollars ($
9,200.00). This option expires
DISSENT: absolutely on August 30, 1959.
Otis, Justice (dissenting). "If this option be exercised,
conveyance shall be made by Quit Claim
There is not, in my opinion, any deed, with Harold A. Hoban warranting
persuasive evidence in this record to that no incumbrances or liens have
support a finding that the following been placed on the property by him.
document was intended by the parties
to be a mortgage and not an option as "Further, Harold A. Hoban grants to
it is labeled: Francis D. Gagne and Robert
 [*482] L. Gagne the right to the
exclusive use of the aforesaid
property, from the date of this
agreement to and including August 29,
1959, and whether this option be
exercised or not. The exclusive use
shall include the right to plant and
harvest crops during this period of
time. Francis D. Gagne and Robert L.
Gagne agree to keep the property and
the buildings thereon in good
condition, ordinary wear and tear, and
Acts of God and the public enemy
excepted.
"Harold A. Hoban does not agree to
pay any taxes or special assessments
and agrees to convey title under this
agreement, if the option be exercised,
subject to all such taxes and special
assessments being levied or falling
due between the [***14] date of this
instrument and the date of the deed,
if any.
"Time is of the essence of this
agreement.
"In witness whereof, the parties
thereto have subscribed their names
this 29th day of August, 1958."
There was no debtor-creditor
relationship when defendant took title
and gave plaintiff an option to buy.
However, whether the instrument is an
option or a mortgage, plaintiff has
refused to comply with its terms
beyond making a payment of $ 1,000 in
the year 1960. I would deny equitable
relief to one who has himself so
utterly failed to do equity.